29 June 2016

Two weeks ago, the contract to build the Suai Supply Base (SSB) was terminated when the company pulled out of the project. La’o Hamutuk recommends that the project itself be scrapped, with no new tender or contract award. This project, which is likely to cost over a billion dollars, will hurt Timor-Leste’s economy, damage the lives and livelihoods of local communities, threaten our environment and prolong our nation’s suicidal dependency on petroleum. It should be permanently laid to rest.

In August 2015, Timor-Leste signed a $719 million contract (the largest in the nation's history) with the South Korean companies Hyundai Engineering & Construction and Hyundai Engineering to design and construct a logistics base in Suai for future offshore petroleum operations. The “Suai Supply Base” is basically a harbor, port and warehouses.

Hyundai E&C has been sanctioned many times by the Korean Fair Trade Commission – the Korean government organ responsible for investigating and prosecuting corruption cases involving Korean businesses. In 2014, Korea’s Public Procurement Service banned the company from bidding for government contracts for two years.

In October 2015, Timor-Leste’s Chamber of Accounts rejected the Hyundai SSB contract, using its power of prior review under Article 32 of Law No. 9/2011, the Organic Law of the Audit Chamber of the High Administrative Tax and Audit Court, which requires contracts over $500,000 to be pre-approved by the Audit Chamber. La’o Hamutuk appreciates the wisdom and courage of the Audit Chamber and the Court of Appeals, and we hope that other public entities will emulate their integrity and impartiality.

The Government appealed the Audit Chamber decision in November, and the Appeals Court has not yet ruled on the appeal. The process is complicated because the Court of Appeals is also serving as the interim High Tax and Audit Court and there were too few judges available to hear the appeal, especially after the Government fired the Portuguese judges in 2014. On 17 June 2016, the Korea Herald, a Korean newspaper, reported that Hyundai’s patience had run out, and the company had told regulators it decided to ‘scrap’ the Supply Base project.

For the last several years, La’o Hamutuk has urged the Government of Timor-Leste to analyze objectively the potential customers and costs, benefits and risks of the Suai Supply Base. Will the gains for Timor-Leste’s people outweigh the project’s economic cost, social impacts and environmental damage? We have not seen any such analysis – only blind faith, sectoral self-promotion, and personal benefits for project implementers, rather than serious consideration of the public interest.

La’o Hamutuk believes that the Suai Supply base will waste Timor-Leste’s people’s money and disrupt communities, but that the economic development, jobs and taxes it will generate will not be enough to justify the financial, land and human costs. Like the other parts of the Tasi Mane Project, the Suai Supply Base continues our unhealthy dependence on petroleum, ignoring opportunities to develop productive economic sectors.

In addition, Timor-Leste must strengthen its procurement system in order to guarantee that we do not give contracts to corrupt companies who simply wish to exploit Timor-Leste’s wealth for their own benefit. Although Hyundai E&C has already pulled out of this project, La’o Hamutuk urges authorities, perhaps including the Anti-Corruption Commission, to look into the tender process leading to this contract. Timor-Leste leaders have recently signed several contracts for large infrastructure projects without transparency and with dubious procurement processes. To protect the public interest, we encourage investigation to determine whether there were violations of Timor-Leste laws and to see how these critical systems can be strengthened.

The delays in the Suai Supply Base contract make the budget adjustment unnecessary, as the current 2016 budget (Book 3A) already appropriates $142 million (plus $64 million in loan money) for the Suai Supply Base during 2016 and 2017, and $498 million more in 2018-2020. With no construction contract, this money will not be spent. Without the Suai Supply Base, other Tasi Mane elements including the $93 million Suai airport, $588 million first phase of the Suai-Beaçu Highway, Suai-Betano oil pipeline and Betano Refinery (for which no cost estimate has been released, but which will cost billions of dollars) make no logical sense, and should also be cancelled. This would free up this money for higher-yielding investments like education and health.

Tendering irregularities and Hyundai’s withdrawal from the Suai Supply Base contract have given Timor-Leste an unexpected opportunity to reconsider the decision to buy many components of the Tasi Mane Project. Although these have already cost Timor-Leste more than $100 million and displaced hundreds of people, the impacts to date are tiny compared with the billions of dollars and thousands of evictions which will accompany the Suai and Betano components of the Tasi Mane project, as well as the environmental damage they will cause. It is time to stop throwing good money after bad, and to focus on realistic, achievable pathways for sustainable, equitable development which will provide benefits for all citizens of Timor-Leste, not only for foreign construction companies and TimorGAP.

This month, Timor-Leste signed a Public-Private Partnership (PPP) agreement with the French company Bolloré to build and operate a major new container port at Tibar, 15km west of Dili. La’o Hamutuk has analyzed the project in depth, identifying some social and environmental impacts, raising concerns about economic viability and pondering implications for Timor-Leste’s sustainability. This blog summarizes points from our longer article, which is in both English and Tetum.

We don’t yet know how much Tibar port will cost the Public Partner, the people of Timor-Leste. The contract promises to pay $129 million to Bolloré up front, but the 2016 State Budget only allocates $94 million over the next five years, and neither figure includes additional spending for roads, project management or unanticipated cost overruns. PPPs all over the world underestimate costs in the planning stages, as promoters often bias their research to justify viability. Just this week, Timor-Leste’s leaders suggested a mid-year increase to the 2016 State Budget to cover some Tibar port costs, notwithstanding that officials knew about them long before the budget was enacted.

The Private Partner – Bolloré Africa Logistics in consortium with Bolloré subsidiary SDV – will initially invest $278 million for construction and will operate the port for 30 years, collecting revenues to recover their investment, costs and profit. However, La’o Hamutuk is concerned that the final concession contract (which we have not been shown) may obligate Timor-Leste to guarantee Bolloré’s return if the port does not generate as much income as expected, due to lower traffic or shipping being diverted to other ports.

When this project was conceived four years ago, many thought that Timor-Leste’s non-oil GDP would continue to grow at ‘double-digit’ rates, and that our oil and gas wealth was more valuable than it has turned out to be. However, ‘non-oil’ GDP – which is largely driven by government spending of oil money – has not grown as much as expected; the latest Government figures report growth of 2.8% and 5.9% in 2013 and 2014 respectively. With rapidly falling oil revenues, the Government will have to reduce spending, which is likely slow the growth of non-oil GDP even more.

Lower state spending means fewer imports by the government, as well as less money circulating to enable citizens to buy things from overseas. For the last several years, Timor-Leste has imported thirty times as many goods as we exported, so that most containers shipped out are empty and will be so for decades to come. Without other economic activity, this trade deficit cannot continue.

The Tibar port design was based on overly optimistic economic projections, and more recent data cast doubt on its rationale. In addition, its traffic will be shared with other new ports planned for Suai, Oecusse, and Baucau. La’o Hamutuk hopes that current evidence and realistic forecasts will underpin decisions about the Tibar project. We believe that longer hours and more efficient operation of Dili port may provide for Timor-Leste’s needs for decades to come.

In addition to the impact on State finances, Tibar port subsidizes imported products relative to locally produced ones. Although this may make imports less expensive, local producers – especially farmers – will have to struggle even harder to compete against cheap food products from overseas. Reduced demand for locally-grown produce could discourage Timorese farmers from growing food, hurting productivity, the economy, food sovereignty and nutrition. By the time Timor-Leste’s Petroleum Fund runs out (which could be as soon as 2025), many fields may be unused. Without money to purchase imported food, people will starve.

Therefore, the port will make Timor-Leste even more dependent on overseas products, at a time when we should be increasing local production to ensure non-oil economic sustainability. It will also take over local people’s land, destroy their livelihoods, and divert Government resources away from basic services for ordinary people.

Instead of spending hundreds of millions of dollars on this new port, La’o Hamutuk urges policy-makers to seriously analyze Timor-Leste’s long-term shipping requirements to see if they can be met by operating the existing port in Dili 24/7 while controlling corruption, improving its management, and enhancing its workers’ skills and numbers. In that way, Timor-Leste would save money, protect vulnerable people and address public needs, allowing us to focus on building the domestic economy to provide a sustainable future for all of Timor-Leste’s people.

Our longer article, which will be updated as the project evolves, includes many more graphics, links, documents and articles from a wide variety of sources.